American Airlines Group, Inc.

there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. To remove yourself from the queue, you may press star 11 again. I would now like to hand the call over to Scott Long, VP of Investor Relations and Corporate Development. Please go ahead.

Thank you, Lateef. Good morning, and welcome to the American Airlines Group fourth quarter and full year 2024 earnings conference call. On the call with prepared remarks, we have our CEO, Robert Isom, and our CFO, Devon May. In addition to our Vice Chair, Steve Johnson, we have a number of other senior executives in the room this morning for the Q&A session. Robert will start the call with an overview of our performance, and Devon will follow with details on the fourth quarter and full year, in addition to outlining our operating plans and outlook going forward. After our prepared remarks, we will open the call for analyst questions, followed by questions from the media. To get in as many questions as possible, please limit yourself to one question and one follow-up. Before we begin today, we must state that today's call contains forward-looking statements, including statements concerning future revenues, costs, forecasts of capacity, and fleet plans. These statements represent our predictions and expectations of future events, but numerous risks and uncertainties could cause actual results to differ from those projected. Information about some of these risks and uncertainties can be found in our earnings press release that was issued this morning, as well as our Form 10-Q for the quarter ended September 30th, 2024. In addition, we'll be discussing certain non-GAAP financial measures, which exclude the impact of unusual items. A reconciliation of those numbers to the GAAP financial measures is included in the earnings press release, which can be found in the investor relations section of our website. A webcast of this call will also be archived on our website. The information we are giving you on the call this morning is as of today's date, and we undertake no obligation to update the information subsequently. Thank you for your interest and for joining us this morning. And with that, I'll turn the call over to our CEO, Robert Isom.

Thanks, Scott, and good morning, everyone. Earlier today, American reported a fourth quarter adjusted pre-tax profit of $808 million. or an adjusted earnings per diluted share of 86 cents, above the high end of the guidance we issued in early December. For the full year, we reported an adjusted pre-tax profit of $1.8 billion, or an adjusted earnings per diluted share of $1.96. I want to thank the American Airlines team for a great year, and for their resiliency, continued hard work, and dedication to delivering a safe and reliable operation for our customers. As I have said previously, at American, we're focused on delivering results. As we closed out 2024, we achieved a number of notable milestones. With the ratification of a contract extension with our mechanics and fleet service team members in October, we now have multi-year agreements in place with all of our largest workgroups, providing labor cost certainty through 2027. We delivered nearly $500 million of value through our reengineering initiatives. nearly $100 million more than expected. We announced a new 10-year agreement with Citi to become the exclusive issuer of the Advantage co-branded credit card portfolio in the United States, which we expect will drive substantial incremental value to American over the life of the agreement while unlocking even more value for Advantage members. We generated record free cash flow of $2.2 billion in 2024. And I'm excited to report that as of the end of 2024, we have reduced our total debt by more than $15 billion from peak levels in mid-2021, achieving our initial debt reduction goal a full year ahead of schedule. While there's still much work to do, these accomplishments are clear evidence that the American Airlines team is committed to delivering results and achieving our stated objectives.

Now, Onto our fourth quarter performance.

Total revenue grew 4.6% on 2.5% higher capacity year over year. This resulted in our unit revenue inflecting positive in the quarter, up 2% year over year and above the high end of our December guidance. Passenger revenue strength throughout the fourth quarter was broad based. In the fourth quarter, Americans year over year domestic, Atlantic, Pacific, and total passenger unit revenue results led U.S. network carriers. While Latin unit revenue was down on a year-over-year basis, we expect short-haul Latin year-over-year unit revenue to be positive in the first quarter. This strong performance is the result of the actions we have taken, and we're encouraged by the trends we see early in the year. Demand for American's product remains strong, as evidenced by the continued strength of our business, premium, and loyalty revenue performance. In the fourth quarter, managed business revenue was up 8% year-over-year, a sequential improvement of two points versus last quarter, and we continue to see yield strength as we look ahead into the new year. Premium revenue increased approximately 8% year-over-year. Paid load factor in our premium cabins remains historically high and was up three points year-over-year with strength in both domestic and international. In the fourth quarter, loyalty revenues were up approximately 14% year over year with Advantage members responsible for 75% of premium cabin revenue. 2024 was a record year for Advantage. Throughout the year, we had a record number of customers enroll in the program with members earning and burning more miles than any year in our history. Spending on our co-branded credit cards was up 9.5% year over year in the fourth quarter, further highlighting the value of our loyalty program. American is proud to have an industry-leading travel rewards program that is frequently acknowledged as providing the best value for its members. Finally, we remain committed to providing a leading customer experience, especially for our premium customers. We're excited to introduce our new state-of-the-art flagship suite on our new Boeing 787-9 and Airbus A321XLR aircraft later this year. Over the course of the next four years, we expect to grow our long-haul international-capable fleet from approximately 125 aircraft today to nearly 200 aircraft in 2029. Additionally, American has led the way in introducing premium lounges, and we're on track to open our fifth flagship lounge this summer in Philadelphia, which marks the ninth premium lounge across the system. In the fourth quarter, we introduced boarding automation as a first step to improving the boarding process, and customer feedback has been overwhelmingly positive. American was the first airline to offer streaming entertainment on our mainline fleet, and we're proud to offer high-speed Wi-Fi on more aircraft than any other domestic airline. In December, we began the installation of high-speed satellite Wi-Fi on our dual-class regional aircraft. We expect the entire fleet will be retrofitted by the end of this year. Additionally, we're in the process of redesigning our mobile app, making it easier to navigate and to provide more self-service options for our customers. Building on these customer-focused initiatives is one of our top priorities, and we'll have more to share in the months ahead. Momentum in recovering revenue from indirect channels continued in the fourth quarter. and we remain on track to fully restore our revenue share from indirect channels as we exit this year. Our indirect flown revenue share improvement was driven by sequential gains in corporate revenue share, which has been the primary focus of our recovery efforts. Importantly, forward bookings continue to show strength into the first quarter. As we enter the new year, we're in position to continue recovering share in indirect channels, We've completed new contracts with all of our agency partners that serve our corporate customers and agreed to new agreements with the leisure agencies that serve our most profitable leisure customers. Additionally, we've reviewed and reworked agreements with our corporate customers most affected by the previous strategy and largely restored share of those travelers in our hub market. Completing these steps provides a strong foundation for us to continue to compete for that business and restore our share in these important distribution channels and with those customers. Last year, we took steps to further grow and optimize Advantage. In December, we announced a 10-year agreement with Citi to become the exclusive issuer of the Advantage co-branded credit card portfolio in the U.S. American has had a partnership with Citi for more than 37 years. The strength of that partnership has enabled us to deliver first-class products and customer service to millions of Advantage card members, and we're excited to continue to partner with Citi. Our 2024 cash from co-branded credit cards and other partners was $6.1 billion, an increase of 17% versus 2023. The 2024 amount includes a one-time cash payment received in the fourth quarter related to our new credit card agreement. As we disclosed at the time of the announcement, we expect the agreement, set to begin in 2026, will enable cash payments from our co-branded credit card and other partners to grow by approximately 10% annually. As annual cash payments from co-branded credit card and other partners approaches $10 billion, we expect annual pre-tax income will benefit by approximately $1.5 billion compared to 2024. Our expanded partnership with Citi will unlock more value and provide exciting new benefits to our customers. With the agreement completed, the teams have turned toward building the business and we look forward to making several exciting announcements over the coming year. Turning now to our operation. Thanks to the resiliency of the American Airlines team, we delivered another quarter of strong results despite a difficult operating environment. Operational disruptions are part of the airline business, and at American, we continue to show that operational resiliency and rapid recovery are part of our DNA. In the fourth quarter, American ranked second in completion factor and on time departures among the four largest U.S. carriers. For the year, we achieved our second best completion factor since the merger, carrying our largest ever volume of passengers. Looking ahead, continued investment in the operation and the technology that supports it will drive further improvements in our operating reliability and resiliency. In closing, we've achieved a number of important objectives in 2024, and our performance in the fourth quarter shows what this team and what this airline are capable of. That foundation and the momentum we've built will serve us well in 2025. Before I turn the call over to Devin, I'd like to take a moment to acknowledge those impacted by the devastating wildfires in Southern California. Our hearts go out to those communities. Americans Advantage members and team members have donated more than $1.7 million in funds to the American Red Cross to support relief efforts, and we've donated supplies and care packages to families and firefighters in the Los Angeles area. And with that, I'll turn it over to Devin to share more about our fourth quarter and full year financial results and our outlook for 2025. Thank you, Robert.

Excluding net special items, we reported a fourth quarter net income of $609 million, or adjusted earnings per diluted share of 86 cents. We produced record fourth quarter revenue of $13.7 billion, up 4.6% year-over-year, with unit revenue up 2% year-over-year. Fourth quarter unit cost, excluding fuel and net special items, was up 5.7% year over year. Our adjusted EBITDA margin was 14.9%, and we produced an adjusted operating margin of 8.4%. In 2024, we achieved nearly $500 million of savings from our reengineering the business initiative, exceeding our goal by nearly $100 million. Most of the value in 2024 was due to better workforce management driven by process improvements and technology implementation, along with improved asset utilization and procurement savings. We also had nearly $350 million of working capital cash release, which exceeded our expectations and helped drive our 2024 free cash flow performance. We remain focused on running the airline as efficiently as possible while enhancing the customer experience. Moving to our fleet, in 2024, we took delivery of 20 new aircraft and 10 used aircraft, resulting in $1.9 billion of aircraft CapEx. Total CapEx for 2024 came in at $2.7 billion. Looking ahead, we expect to take delivery of 40 to 50 new aircraft in 2025. Based on our current expectation for new deliveries, our 2025 aircraft CapEx which also includes used aircraft purchases, spare engines, and net PDPs, is expected to be between $2 and $2.5 billion, and our total CapEx is expected to be between $3 and $3.5 billion. We continue to expect moderate levels of CapEx moving forward, with aircraft CapEx averaging between $3 and $3.5 billion for the remainder of the decade. We ended 2024 with $10.3 billion of total available liquidity and produced record free cash flow of $2.2 billion. During the fourth quarter, we prepaid $750 million of near-term debt maturities and strategically repriced two term loans. We ended the year with total debt of $38.6 billion and net debt of $31.6 billion, our lowest level of net debt since 2015. With these actions, we achieved our total debt reduction goal of $15 billion from peak levels in mid-2021, a full year ahead of schedule. We are thrilled to have delivered on this commitment, and we remain focused on continuing to strengthen our balance sheet as we work toward our stated credit rating goal of BB. Previously, we committed to reducing total debt to less than $35 billion by year-end 2028. We are now committing to achieve that goal by the end of 2027. Now onto the outlook for 2025. In the first quarter, we expect capacity to be flat to down 2% year over year. This capacity is driven by lower capacity in the off-peak months of January and February, which combined are down approximately 3%, followed by growth of 3% to 4% in the peak travel period in March. We continue to expect full year capacity to be up low single digits, in line with expected economic growth and our prior guidance. Our growth in 2025 is focused on improving our schedule in markets that are not yet fully restored to historical levels, primarily in our northern hubs. We expect our year-over-year capacity growth rates to be fairly balanced between domestic and international operations. We will remain flexible and will adjust capacity in response to demand and the competitive environment in which we operate. We expect first quarter revenue to be up 3% to 5%, and for the full year we expect revenue growth of approximately 4.5% to 7.5% versus 2024. This is driven by continued indirect revenue recapture, strong demand for our product, and a constructive industry backdrop with supply in line with expected demand. First quarter non-fuel unit costs are expected to be up high single digits year over year. This unit cost growth is driven by the reduction in year over year capacity, the mix of that capacity, and the new collective bargaining agreements that were reached in the second half of 2024. In the first quarter, regional ASMs will be up approximately 17% as we return to full utilization, and mainline capacity will be down 2 to 3%. Based on the timing of our labor agreements and the shape of capacity, we expect unit costs to improve sequentially throughout the year, from high single digits in the first quarter to low single digits as we exit the year. For the full year, we expect non-fuel unit costs to be up mid-single digits year over year, with a large majority of the cost growth coming from higher salaries and benefits. As we look out to 2026, we have certainty in our labor costs, and the rate pressure from our new collective bargaining agreements will ease. We expect that in 2026, our year over year growth of our salaries and benefits per ASM will be well inside of inflation. We continue to focus on reengineering the business to become more efficient. Through best-in-class workforce management, efficient asset utilization, and procurement transformation, we expect more than $200 million of incremental cost savings in 2025. Additionally, we are investing in a multi-year transformation in our IT and tech ops organizations to modernize technology, improve operations, and optimize staffing costs. We anticipate continuing to productively utilize our workforce with mainline full-time employee counts staying approximately flat to 2024. This year, we also expect more than $100 million in additional working capital improvements. Based on our current demand assumptions and fuel price forecast, we expect a first quarter loss of approximately 20 to 40 cents per diluted share. For the full year, we are expecting to deliver adjusted earnings per diluted share of approximately $1.70 to $2.70. We expect another year of record free cash flow generation in 2025 and are currently forecasting more than $2 billion of free cash flow for the full year. Now I'll turn it back to Robert for closing remarks.

Thanks, Devin. As we start 2025, The long-term targets we outlined last March remain our focus, growing margins, generating sustainable free cash flow, and continuing to strengthen our balance sheet. Our priorities for this year will continue the momentum we built in the back half of last year and further our progress toward achieving our long-term targets. In 2025, we plan to operate with excellence and efficiently deliver safe and reliable operations. Take a fresh look at our product and service as we sharpen our focus on the customer experience. Continue to strengthen our network, both organically and through our airline partnerships. Our December announcement with Citi was an important milestone for American. It will allow us to enhance advantage and further strengthen our leading travel rewards and co-branded credit card program ecosystem. All of these priorities, including the restoration of our core sales and distribution initiatives, will allow us to deliver on our revenue potential and will continue our work to re-engineer the business as we build a more efficient airline. We know that by delivering on our commitment, we'll unlock significant value for our shareholders.

Operator, please open the line for questions.

As a reminder, to ask a question, you will need to press star 11 on your telephone. To remove yourself from the queue, you may press star 11 again. To allow everyone the opportunity to participate, you will be limited to one question and one follow-up. Please stand by while we compile the Q&A roster.

Our first line up.

Catherine, your line is open, Catherine.

Good morning, everyone. Thanks so much for the time. So, you know, we don't know exactly what low single-digit capacity growth means for the year, but if I just use 2%, that means RASM growth is about 4% for the year versus the 5% I'm getting in one queue on your guidance. You know, I understand capacity growth accelerates over the year, but can you talk about your assumptions on indirect revenue improvement and the industry outlook underlying that full-year guide? And just really wondering, like, what could go better than your base case?

So, Catherine, thanks. I'll start on our expectations for indirect revenue recovery, and Devin can speak to capacity, and Steve can add anything that he thinks is important as well. We're on track for recovering what we had lost. I feel really good about the progress we've made in a short six-month period. and as we take a look and you can see from from our notes uh as we take a look at ford bookings uh it really suggests that uh we've got traction in the marketplace so i have great confidence that we're going to recover fully as we move through through the year and then you know i just also you know note this that we also believe that from a revenue performance perspective even outside of indirect channels We think that we're poised to perform and outperform. You saw it in our fourth quarter results, and I can't speak to others' assumptions, but in an environment where the economy is improving, I think that we're going to improve faster than our largest competitors. Devin?

I don't think there's any big moves in the quarterly capacity numbers. We got into first quarter, which will be down 0% to 2%. The remaining quarters will probably be all up in the neighborhood of 3% per quarter in terms of ASM capacity, which gets you about that midpoint on low single-digit capacity for the year.

Captain, this is Steve. I'll just follow up with you. You asked about sources of potential upside from our base case. I'll just offer three. First, I think that there's a decent chance that we could restore our sales and distribution revenue faster than Roberts by the end of 2025. I think that's an upside. Second, I would point you to both the third quarter and especially the fourth quarter. Ultimately, we're going to be judged on everything and certainly revenue by our results, and I think the fourth quarter shows what we're capable of. And then finally, I'd just point to our agreement with Citi. The new agreement doesn't start until 2026, and so the the growth that we uh that we focus on from it won't start until then but um there is a you know to get to that there is a ramp up effort underway that i think could provide upside in our co-brand revenue during the year that's great thanks thanks for the additional color steve um devin uh maybe one more for you um you know as you've reached your medium-term debt goal

Can you speak to how you're thinking about capital allocation between now and that longer-term goal in 2027? You know, understand you have more deleveraging to do to hit that 2027 goal, and then you mentioned a BB credit rating. But, you know, what's the gating factor to consider shareholder returns? Thanks so much for all the time.

Thanks, Katie. Well, to start, we are really proud of achieving the $15 billion goal that we set out to do two or three years ago at this point, and we achieved it a year early. But our focus still remains on improving the balance sheet. We've set another near-term goal here to have it total debt down another $4 billion to around $35 billion by 2027. So we'll focus on that. We'll continue to focus on reinvesting in the business. And as we continue to improve free cash flow and improve the balance sheet, we'll come back and talk more about other capital allocation priorities.

Thank you. Our next question comes from the line of Connor Cunningham of Milius Research.

Your question please, Connor. The next question comes from the line of Connor Cunningham of Milius Research. Your line is open, Connor. Connor, please make sure your line isn't muted. And if you're in a speakerphone, lift your handset. We'll go to the next question.

Our next question comes from the line of Scott Group, Upwith Research. Your question, please, Scott.

Hey, thanks. Good morning. So, Devin, you laid out chasm going from Hi singles to start the year towards low singles ending the year. It doesn't seem like guidance implies a big deceleration in Rasm throughout the year. So can you just talk about like how you see the progression of like price cost on like a net basis trending throughout the year.

Well, I'll just start by talking a little bit about our cost performance, because right now we are seeing some more pressure in the first quarter than we are during the rest of the year. So to start, we are really proud of our cost performance over the last several years. I'm excited about what the company is doing to re-engineer the business and drive more efficiencies. I think we're making really nice investments in technology. The operations team is really leaning into this, and I think we're delivering a more efficient operation, a better operation for our customers. In the first quarter, though, we are seeing unit costs up high single digits. It's a handful of things. We have less capacity in the first quarter than we did a year ago. That starts to change as we grow capacity in the last three quarters of the year. We have a ton of regional capacity coming online. As you know, that's higher cost capacity than the mainline capacity. It's actually driving average gauge to be down 4% to 5% in the first quarter year over year. Stage length is down as well. And then, of course, the labor agreements that were signed in the back half of last year weren't in our base for this year. So we see a lot of cost pressure in the first quarter. It eases throughout the year. We feel we're incredibly well positioned as we get into 2026. And we know we run the business as efficiently as anybody. On the margin side, I don't think there's any quarter that show outsized margin improvement year over year. We've guided EPS to a midpoint of $2.20, so we are seeing nice EPS improvement year over year, but I don't think you're going to see any one quarter pop really materially versus how we performed in 2024. Okay.

And then can you just talk about maybe the progression of RASM throughout Q4 and then just regionally how you see RASM playing out in Q1, like transatlantic was up 12% in Q4. Can that sustain itself in the near term, just any regional color? Thank you.

Well, Scott, thanks for that. I just point to the fourth quarter in which we had strong performance across the board, so Atlantic, Pacific, and then also domestic in terms of year-over-year improvement. led our network competitors and overall we led it as well. As we take a look out into this year, I see continued strength domestically and the strong dollar is absolutely going to have an impact on buying and travel to Europe this summer. So we take a look to March. And as we look to some of our peak periods, spring break and getting into the summer, I see robust demand across the board. We've talked about premium traffic as being wind behind our sails and also something that I think that we're going to be able to do even better in. And Steve mentioned some of the things that are going to be additive as well in terms of potential for even better performance. So overall, really confident about the year and, you know, like what we see and how we can operate in this environment.

Thank you.

Our next question comes from the line of Jamie Baker of JPMorgan Securities. Your line is open, Jamie.

Hey, good morning, everybody. So an interesting statistic that united throughout yesterday was that the margin gap between its best and worst performing hubs had narrowed to, I guess, the lowest gap in I think it was nine or ten years. We've discussed Americans' relative hub performance on these calls and in person for quite some time. but I never asked about the range. Would you be willing to comment on that margin range between your top and bottom hubs and whether it's improving or widening? Obviously, a lot of moving pieces in many of your hubs at the moment. Thanks.

Okay. Hey, thanks, Jamie. And I'll start. Devin and Steve can add in. Look, it's no secret that we've had to build back our network, and we have a large portion of our network that is supported by our regional fleet. I feel great that in 2025 we're going to have our regional fleet fully deployed. And what that's going to allow us to do is better fill out some of the hubs that, quite frankly, are ready and I think willing to support the network in a different way. But we've got to put the capacity there. So you're going to see the largest schedules that we've ever had in places like DFW in Charlotte, Miami, and its peak will be bigger than it's ever been. DCA, which had been a laggard coming out of the pandemic, is now getting back to the performance levels that we had hoped. And we talked about some of the work that we're going to be doing in Chicago. So across the board, we see performance improving. Some of the weaker points in our network is we take a look to the coast. in New York and out in Los Angeles. And I'd say this, that the schedule changes that we've made in LaGuardia, the largest schedule that we've run since the pandemic, I believe, you know, just as we closed out the fourth quarter, we're really seeing nice results in terms of where we put that capacity. And so from that perspective, I believe that we have improved considerably in our New York performance, and I hope and have confidence that that will be something that we can maintain going forward. In Los Angeles, you know, from that perspective, there are some capacity restrictions, but on that front, you know, that's one where we really do, you know, partner well with our one world partner, Alaska, airlines, and we look forward to continuing that progress. So when you take a look at American, you've always known that DFW, Charlotte, DCA, and now DCA getting back into the ranks have performed well. Philadelphia is getting back to where it should be. Phoenix has historically been strong. And then, as I mentioned, we've got a focus on the coasts in Chicago. Yeah.

That's helpful. And then, you know, while I have you, Robert, you know, when I last saw you, which I think was in September, you mentioned you were spending half your time on efforts to reconcile with corporate accounts. And, you know, I think you said that publicly, you know, at a conference or two. And I don't know if you actually meant precisely 50% or if that was just, you know, sort of metaphorical. But by the way you describe the effort in your prepared remarks, makes it sound like most of that effort is behind you. Is that the right interpretation? I guess I'm just confused on exactly where American is on the reconciliation front and how managed corporate recovery trends from here. Thanks in advance.

Thanks, Jamie. Look, I will give a ton of credit to our commercial team led by Steve Johnson for the enormous amount of work that had to be put in. And they absolutely enlisted me in that effort. And I will say, I don't know if it's 50% of the time, I spent a considerable amount of my time you know, making sure that I was up to speed and talking to our corporate customers and agencies as well. That work is paying off. It's foundational in that, don't forget, you know, these contracts are set up over a period of time. Revenue doesn't show up right away, but we're not resting on that. We're learning from, you know, certainly the issues associated with our past strategy and And that, I believe, you know, bodes well for the future. So, Steve, why don't you spend some time talking about progress and how you feel about where things are headed?

Sure, Jamie. And let me start by saying the team and I feel good about that. As Robert said in his opening remarks and We're on track to achieve the commitment that he's made to fully recover our share by the end of 2025. As I said earlier, I think we can beat that. But it's not a linear process, and it's kind of event-driven, if you know what I mean. We saw in the third quarter Robert's comments at Bernstein when he said that we were abandoning the old strategy. That had an impact on share. The restoration of content into EDIFACT had an impact on SHARE. The engagement with our partners in the third quarter, what Robert was just talking about, but sometimes referred to around here as the apology tour, that had an impact on SHARE. The fourth quarter was, you know, lots of work done in the fourth quarter, but a little bit different. And maybe that, you know, accounts for the non-acceleration that you might have been looking for over the course of the last three months. But the fourth quarter task was actually infrastructure. It was making new agreements with all of our partners in the indirect community. It's an arduous task, kind of counterparty by counterparty. While it was going on, understandably, we were negotiating, so you didn't see a lot of share shift during that period of time. Indeed, some of our partners sent us even stronger messages during those negotiations. But it was ultimately successful, and we now have new agreements with 30 of the most important PMCs and agencies. And as Robert said earlier, we've modified the economics for all of our significant corporate customers who were impacted by our old strategy. And, you know, as we as we say and our partners say even more frequently, you know, three airlines are better than one. And those agreements create real incentives to move business to American. And indeed, the agreements with the TMCs and the agencies create real incentives to reestablish business. the share equilibrium that existed, you know, at the beginning of 2023. So I expect those agreements are going to be big drivers of share shift in the first and second quarter. And so you'll see continued progress.

Thank you. Our next question comes from the line of Connor Cunningham of Mealy's Research. Please go ahead, Connor.

Hi, everyone. Can you hear me now? We've got you, Connor. Can you hear me? Go ahead, Connor. Someday I'll figure out how to use the phone. Someday I'll figure out how to use the phone. Can you – so I'm just trying to take all this in. You sound like there's upside, indirect corporate share regains and then the loyalty stuff, as well as just like sequentially improving costs throughout the year. But your four-year guidance at the low end suggests a decline – your re-earned earnings? And I'm just trying to understand that part a little bit better. It just seems like, are you assuming that the main cabin doesn't get any better from here? It just seems really conservative, just given what we've heard from you today and what we've heard from others so far. Just try and understand it a little bit better. Thank you.

Okay. Connor, I'll start. Devin can add in here. Look, again, we can only forecast based on what we know. and what we see right now. We don't know what others are putting into their models. We've told you that we think that there's continued strength and that in terms of revenue performance, especially given the capacity that we're putting in, we see significant growth in our unit revenues. Now, if there is a better overall performance in the industry, as I said, I think that we'll continue to show out performance because of the things that we've been doing. So that's, you know, my comment in terms of, you know, questions about, you know, how is your forecast versus, you know, what the assumptions others are making. Devin, anything you want to add?

Yeah, I'll just say midpoint of our guide is $2.20. That's up more than 10% versus what we did in 2024. There's obviously variability in earnings. We think the midpoint is what we seek to achieve. We'd like to do better than that. But we put a range of outcomes because there is still some volatility that's there in things like fuel or some amount of economic risk at a macro level. But right now, we feel really good about the midpoint on the guide, and it's a nice year-over-year improvement, and we hope to exceed that.

Okay. That's helpful. On the city contract, or city, you know, the renegotiation, I'm just trying to understand that a little bit better. So the economics change in 26, but I think that there's a volume and spend-related component in 25. So can you just help, you know, bridge the contribution of how that will evolve, you know, earnings contribution, how that evolves over that change from 25 to 26? It just seems, again, like there's this potential for it to surprise. So just thoughts there. Thank you.

Sure, let me see if I understand the question. Our existing agreement includes minimums for new accounts and new business that Barclays and Citi have committed to. We expect them to overperform on those as part of the ramp up into 2026. Is that helpful?

Yeah, no, that is. Thank you very much.

Thank you. Our next question comes from the line of Ravi Shankar of Morgan Stanley. Your question, please, Ravi.

great thanks morning I just want to start with a follow-up on the the corporate normalization commentary I think you said that you adjusted the economics for some of the biggest accounts there can you unpack that a little bit more how does the profitability of the corporate business compared to what it was before now that like or once the share is normalized sure

The adjustments, we've evolved our business with our corporate customers over the course of the last seven or eight months. We talked about this on the last earnings call. Some of this had to do with macro changes that we made, like reestablishing what we call corporate experience, but a certain set of unique corporate experience experiences. advantages for our traveling corporate customers, employees, waivers and favors, allowing travel agents to, in certain cases, book flights or change tickets that are not completely consistent with the general rules that apply. So some of that was, I think, very helpful. But as part of the former strategy, we had created a kind of one-size-fits-all discounting system for corporations that across the board for anyone who was impacted by that, that reduced discounts to, I think, an uncompetitive level. And that impacted about 24% of our corporate customers. Those were the ones that over the course of the strategy, their contracts came up and we were able to change them. So with respect to those customers, we've gone back, worked with them, negotiated with them and established economics that are more consistent with the past and more competitive.

on all cases um those uh the revenue from those agreements even with uh a little bit better discounting is going to be um very accretive yeah and steve i think i think we've said this that uh you know when we talk about uh sales expense and you know bringing back uh sales team and and you know potential impact on some of the things that we're doing that overall cost impact is going to be a little less than a point of chasm but again all of this is uh going to be uh highly beneficial to the company

Great, that's a helpful explanation. Maybe as a follow-up, you guys mentioned upgraded Wi-Fi, which is great to hear, but as we enter a new era of premium cabins, if you will, obviously you guys have new planes, but how do you think about bringing your own device versus screens on seats and maybe the ability to monetize those screens over time?

Rami, can you say that one more time? I missed a part of that question.

So the question was, as we enter a new era of premium cabins, how do you guys think about bringing your own device versus having integrated screens on seats? Does one versus the other impact your ability to either sell a premium service or monetize that screen over time?

oh no so robbie thanks thanks for that question and and let me you know talk about you know some of the things that we anticipate regarding you know product going forward we're really pleased to announce uh the introduction of our our new flagship suite uh and that's going to be coming on the 787 nines and the 321 xlr's uh and one of the things you'll note is those are you know Let's face it, those are international aircraft, long haul. And one of the things that we're going to make sure is our customers, especially in the premium cabins and from that perspective, any international seats, that they have access to screens in addition to the latest in terms of Wi-Fi and streaming entertainment. So those aircraft are going to be fully equipped. You'll see that we're doing reconfigurations on our 777-300s. and adding flagship suites to that and offering more premium seating overall same with that that will come with the latest in terms of technology in seat back as well now from a domestic perspective we've said that you know we're really interested in making sure that our customers have access to to Wi-Fi, satellite-based Wi-Fi, on everything that they fly. And while we can't offer it on the smallest regional jets, you'll note that we will have streaming Wi-Fi installed as part of our initiative this year so that all of our larger regional aircraft will have satellite-based Wi-Fi by the end of the year and with that uh once you've got that kind of comprehensive approach it allows us to do some different offerings so you'll hear more from us as the year progresses in terms of how we can take even better care of our customers especially you know those those that are are the the highest highest tier and as well you'll see more in terms of partnerships and relationships uh you know our relationship with with apple plus is is is really uh something you know industry record setting, and we anticipate that that is just the start of where things will go.

Thank you. Our next question comes from the line of Duane Finnegworth of Evercore ISI. Please go ahead, Duane.

Hey, thanks. Good morning. Just on your northern hub build out, that comment, kind of caught our attention. Can you talk about what inning you're in and maybe expand on how much of your footprint, you know, transitioned over to JetBlue, how much of that has transitioned back, and basically what your footprint in your northern hubs looks like now versus pre-pandemic?

Dwayne, I'll start and Steve can elaborate further, but I'll just note two points right off, and that's LaGuardia and DCA. We're going to be back to our largest schedules, largest number of seats offered in both LaGuardia and DCA since the pandemic. And that, I believe, is indicative of the focus that we're putting on. And by the way, we're seeing really nice results with that added capacity. In terms of Philadelphia, that had been one of the markets that had been most difficult for us, given the pull down of regional aircraft. And the same holds true for Chicago. As we restore our regional aircraft lift, The beneficiaries of that are going to be Philadelphia and Chicago. In Philadelphia, Steve, I don't quite know the size of Philadelphia compared to prior times, but I think we're getting close to back to where we were.

Yeah, and that's the intention to have Philadelphia more or less the same size as it was pre-pandemic.

That's helpful. And then I don't know if you have a metric to share, but just on how you measure competitive capacity, How do you see that in 1Q and maybe an early read on 2Q versus what you were seeing maybe in 4Q? Thanks for taking the questions.

So, Duane, I'll start with this. Look, competitive capacity, it's important, but it's all important to the extent that it drives profitability. We're focused on margins, and we're focused on making sure that we take advantage of the assets and the strengths that we have. So we're focused on that, but obviously keeping track of what's going on in the marketplace. there is an impact in any one of the places that we fly. We're gonna adjust accordingly. The good thing about the fleet that we've built up despite the difficulties that we have with supply chain and aircraft deliveries throughout is that we spent you know since the the merger you know 30 billion dollars plus in terms of new aircraft we have the the youngest fleet we don't anticipate any big retirements coming up and we have the ability to flex this fleet in a very economic fashion uh should we find that that uh conditions warrant expansion so you'll see us with with moderate growth based on you know expectations uh for this year uh as we get out into latter stages 2025 and 2026 If demand and profitability warrant an adjustment, we'll be ready to go.

And I just add that, you know, to the extent that you're asking that question based on an ASM growth comparison, I just also look at the growth and departures and recognize that as we grow, we're going to have our growth in the most competitive time channels and most competitive markets. places possible. So I don't know that ASMs is the perfect measure for comparing.

Thank you.

Our next question comes from the line of Michael Linenberg of Deutsche Bank. Your question, please, Michael.

Yeah, hey. Good morning. Two sort of fleet-related questions here. Just on the comment on growing your international fleet from 120 to 200 by 2029. At that point in time, how many A321 NEO XLRs will you have in your fleet at that point? And presumably that's in that 200 number.

Yeah, that is in the 200 number, and we expect to have 40 NEOs at that point. Great. Sorry, 40 XLRs at that point.

Great. And then just my second question, you know, as we think about, you know, fleets getting old, and I know your fleet is aging, and, you know, we start, you know, and more specifically wide bodies and the ability to procure wide bodies. You know, I know economically it makes sense to procure narrow bodies from both OEMs. You guys do that, and it's helped you out well with the MAXs and the 321 or 320 NEOs. Are we at a point where, you know, the decision to do that with wide-body aircraft, whether it's, you know, to procure from different OEMs or even from two different families within the same OEM, when you think about, you know, your replacement for your wide bodies, you know, probably later this decade? Thanks for taking my question.

Thanks, Mike. And I'll start. Others can chime in. I really like where we're at in terms of our fleet. We're the operator of the world's largest fleet of 320 family aircraft. You know, one of the world's largest operators is 737 aircraft. We've got the MAX 8s, and fortunately those are being delivered, and we've got this order out for the MAX 10s. Now, the benefit in having these large fleets in kind of one flavor, it's really helpful from an efficiency perspective, right? You know, we're not out there with, you know, a dozen different aircraft types. Our pilots, our flight attendants, our catering, our servicing, our maintenance, engines, supply chain. You think about it, it greatly simplifies what we're doing. We had that same philosophy from a wide-body perspective, and we love the 787 model. The 8s and then the 9s are going to be the real workhorses as we go forward. We know that our customers love it as well. If we take a look at the 777, the 777-300 is going to be around for some time. uh and uh they're going to be getting a refresh and it starting this year we'll see uh the the benefit of the flagship suites coming out those are going to be in the fleet for a long time we've got a decision to make about a triple seven uh two hundreds at some point in time whether we reconfigure uh or uh do something else and we're in contact with uh airbus We're in contact with Boeing as well. And we're also mindful of the benefits that we get by having a simplified fleet and with fleet types that give you great flexibility depending on range and demand. And the comment about, you know, your fleet's getting older, that's true. It's just, you know, nature of time. But the fact of the matter is we're starting from a much better spot than any of our competitors. As Devin has said, our anticipated capital spending over the long run, and this is to provide virtually any level of growth that we want, especially if we have the ability to keep older aircraft around and hold off the retirement, it is very modest. So $3.5 billion type range as we take a look out to 2026 and beyond. 2025 is a real low spot in terms of capital spending. So we already have the lowest average age for our fleet. We don't have retirements coming up. And I see that as others have to invest in their fleet and are talking about numbers that are more than double of those kind of capital expenditures and the difficulty, at least with delivery of aircraft these days, I really like where we're at.

Thank you.

Our next question comes from the line of Brandon Oglenski of Barclays. Your question, please, Brandon.

Hey, good morning, everyone, and thank you for taking the question. Robert, I guess if you step back, I mean, because obviously so much has changed in the past year, especially, you know, since the investor day, I think in March of, you know, last year. But obviously you've talked about a lot getting corporate share back. But how would you articulate American's commercial strategy going forward today? And I guess I'm just observing here, but it feels like maybe you're still in a zone of defense. When does that then transition into an offensive front with that strategy? Thanks for that question.

And, you know, our Investor Day commitments, we stand by them. You know, I don't like that we haven't grown margins. And as I take a look out into the future, and as Devin has said, I do believe that we're set up well to grow margins, especially because of everything that we've done from an efficiency perspective. Now, I'm going to get back to the other side of that equation because it's not just a cost perspective. But you combine, you know, the record free cash flow production that we produced. We've done a really nice job of getting this airline set up so that we're not worried about, you know, balance sheet issues. And that puts us in a very different position. I've talked to you about our fleet. And as we take a look going forward, you are going to see this year American absolutely spend a lot more time and focus and energy in terms of improving our customer experience in a way that we can monetize. So from that perspective, we have a foundation built that I think others are trying to catch up on, whether it's establishment of satellite Wi-Fi across all fleets, ultra-premium lounges, which we're going to be introducing a new Philadelphia lounge to add to the complement that we already have. This collection of premium seating on our aircraft, and whether it's the new flagship suites on 787-8s or 787-9s and the XLRs, or whether it's just the domestic product where we're so strong We have a regional product that others can't touch in terms of the E-175. And in terms of the rest of the fleet, you'll see that the older aircraft that we have, whether it's the 320s and 319s, they're going to be both getting upgraded. And so I feel like we have all the pieces of the puzzle in place to really take off. Now, we've got some work to do putting that together and selling and telling our story better. But we are the largest in the best market in the world here in the U.S., We've got an enviable position in the biggest business markets. When you think about London Heathrow and Tokyo, we've got the best set of partners around the world in those biggest markets. Americans got a lot of momentum as we look forward.

I appreciate that, Robert. And then, Devin, I know you talked a lot about the cost headwinds this year, but is there any productivity offsets potentially in these new labor agreements and especially you know, in the context of that simplified fleet that Robert was just discussing?

You know, not necessarily offsets related to the labor agreements themselves. I think the offsets we're finding is just a lot of work on efficiency and investing in the right technologies. As we've talked about last year, our reengineering the business efforts generated about $500 million in value. This year, we think we're going to generate a couple hundred million dollars, but that's net of some really meaningful investments that we're making in our IT shop, that we're making in our tech ops organization to digitalize all the work that they are doing. So I feel great about the investments we're making. It doesn't all necessarily pay back in this calendar year, but we look out to 2026. I think our cost profile is going to look really good. And I've always said, I look back over the last several years, I think we've performed better than anybody when it comes to unit cost delivery. So, you know, we're not necessarily seeing anything in the labor agreements. That's not what we're going after in those labor agreements. But we are running a more efficient business right now. And I think we're going to run a more efficient business a year from now than we are today.

Thank you. At this time, we will be taking questions from media. Media, please press star 1-1 on your telephone. To remove yourself from the queue, you may press star 1-1 again. To allow everyone the opportunity to participate, you will be limited to one question and one follow-up. Again, we are taking media questions at this time.

Please stand by while we compile the Q&A roster.

Our first question comes from the line of Allison Sider of Wall Street Journal. Your question, please, Allison.

Hey, thanks so much. After the Starship breakup last week, how concerned are you about sort of the operational and safety impacts from, you know, from space launches? And, you know, is there anything you're asking the FAA to do differently in terms of kind of how it handles those?

Well, Ali, thanks for the question. We're in constant contact with DOT and FAA, and no doubt launches do have an impact on our network, especially given the airspace issues that are impacted. What we do, we coordinate closely. I've got David Seymour here, our chief operating officer, and I think what he'll tell you is that the coordination effort is better than it's ever been and that, you know, one of the things we try to do is work with any launches to make sure that they're as least impactful in terms of time of day that they take place. Dave, you want to add anything?

Yeah, I think, Robert, you said the right things in our coordination with them. And I think it's just the FAA is going to be very mindful of those launches. And they executed their strategy in locking out a containment zone for that launch. And it was disruptive to us in terms of diversions that we had to do holding aircraft on the ground. But we recovered well. But as Robert said, the coordination right now that we have with the FAA and air traffic side has never been better, and, you know, we're going to continue to work with them on that.

Got it. And, I mean, do you know or is there anything you want to be done differently, you know, for future launches in terms of, you know, the sort of perimeter for the closed airspace or the timing of launches or anything you're looking to change from a safety perspective?

We're still waiting for the FAA to continue their review of that, but on the surface right now, I don't see anything different that we're going to see. They've done a lot of work over the last several years of actually continuing to manage that, so we have not as impacted as we were in the past, but we're going to work with them. I think they need to continue their review of that situation, and then we'll get back and see if we need to adjust plans.

All right, thanks.

Thank you. Our next question comes from the line of Mary Slangenstein of Bloomberg News. Your question, please, Mary.

Hi, thanks. I wanted to ask about the IFE on the premium cabins that you're talking about going forward. I'm wondering what's been responsible for that shift in your approach on IFE? It's just competitive pressure, something that consumers are demanding, or what's behind that?

Oh, hey, Mary, you might have mistaken something. In terms of our IFE strategy, in-flight seat-back entertainment on our international-based wide-body aircraft or, you know, in the case of the 321XLRs, those will be equipped to take care of our customers. The rest of our fleet will have satellite-based Wi-Fi except for the smallest regional jets.

Right, but you don't currently have IFE on your international wide bodies, or am I wrong on that?

We currently have IFE on our international-based aircraft.

Thank you. Sorry about that. And the other question I wanted to ask was what changes that you potentially foresee from the Trump administration in terms of either the operations of the FAA and ATC issues with, you know, them trying to step up hiring or make changes faster than the past administration had to change the ATC issues affecting the airlines?

Well, as I said in some earlier comments, I think President Trump and the administration, they recognize the importance of aviation to commerce. They certainly did that during the first Trump administration in response to COVID and the support that was provided to the industry. It's a reason why the industry is as strong as it is today. And credit really does go to the first Trump administration and the quick reaction. Now, in regard to what we do next, I do believe that it's imperative that we look at investing in air traffic control. We know that there's a huge tax put on, you know, efficiency for the airlines on our customers in terms of the time it takes to fly. And ultimately, you know, we've got to address it because, you know, there's a lot of growth that I think is possible and and hope for in the industry. But we can't keep on jamming more aircraft into the skies in a way that can't be serviced efficiently. So today, it takes a lot longer to fly from Chicago to New York or Washington to New York than it did 20 years ago. There's no reason for that. There's plenty of room in the sky. There's technology that we can be deploying that would be helpful from an overall control perspective. And also, our aircraft are actually equipped to handle and to perform in a different system. So we've got a lot of work to do. It's going to take investment, but I have great confidence that that will be the type of work that we're able to engage on. The last thing I'll just say is I also believe that the administration will be very cognizant of regulatory issues that can benefit both the airlines and our customers as well, and we'll be working closely with them on that.

So I'm very, very optimistic about the future.

Thank you. Our next question comes from the line of Leslie Josephs of CNBC. Please go ahead, Leslie.

Hi, good morning, everyone. Just considering what the Trump administration has said about DEI and how they're extending that, ordering changes within the federal government, I was curious where American Airlines stands. I see the website says DEI are foundational to American Airlines culture and that you plan to leave the industry. With DEI, any changes there internally, and do you have any concerns about the review at the FAA that the federal government's doing? Thanks.

Thanks, Leslie. I can't speak to anything going on at the FAA. I'll just say that at American, we've always had a philosophy of hiring the best team members that we can possibly bring into the company. We serve... 650,000 plus on peak days customers, 650,000 plus customers of all backgrounds and places throughout the world. We have 130,000 team members that work in all parts of the globe. Our efforts here are going to be focused on caring for people on life's journey. And in that, we're going to do that in a way that's beneficial for our customers and profitable for our airline. That's going to be our guiding factor as we go forward in looking for ways to better take care of our customers and better take care of our team members. That's front and center, and that is, you know, where American is headed.

Thank you. This concludes the Q&A portion of the call. I would now like to turn the conference back to Robert Isom for closing remarks. Sir? Thanks, Lateef.

I appreciate everybody's interest and time today. And I'd just like to reiterate that the fourth quarter was a quarter for us in which we laid down some incredibly important milestones. It was important for us to outperform the industry in terms of revenue production year over year. It was important for us to achieve record free cash flow that put us in place to take advantage of a lot of other things that we've been doing in this company to make sure that our balance sheet is as strong as possible. And we're excited about the challenges that we've taken on, not only to restore our revenue performance, but also to expand upon that and take advantage of everything that we've built in this airline over the last several years. And so I'll reiterate our commitment to our customers to take care of them in the best possible fashion. And then I'll also reiterate our commitment to our investors. We are intent on growing margins, producing sustainable free cashflow, further continuing to strengthen our balance sheet. And there's a tremendous amount of upside in American right now. When you take a look at our performance and what we're capable of doing as we look out into 2025 and going into 2026, American is poised to outperform. Thank you for your time.

This concludes today's conference call. Thank you for participating. You may now disconnect.